Switzer v. Wood

• Decision Date: 15 April 2019
• Docket Number: F077206,F077493
• Citation: 35 Cal.App.5th 116,247 Cal.Rptr.3d 114
• Court: California Court of Appeals Court of Appeals
• Parties: Ted SWITZER, Cross-complainant and Appellant, v. Robert Clark "Sonny" WOOD II et al., Cross-defendants and Respondents.

35 Cal.App.5th 116

247 Cal.Rptr.3d 114

Ted SWITZER, Cross-complainant and Appellant,

v.Robert Clark "Sonny" WOOD II et al., Cross-defendants and Respondents.

F077206

F077493

Court of Appeal, Fifth District, California.

Filed April 15, 2019

As Modified May 10, 2019

Certified for Partial Publication.^*

Gregory L. Altounian, Fresno, and Michael Carrigan for Cross-complainant and Appellant.

Robert Clark "Sonny" Wood II, in pro. per.; and Timothy D. McGonigle, Los Angeles, for Cross-defendants and Respondents.

LEVY, J.

Appellant Ted Switzer (Switzer or appellant) prevailed at trial against cross-defendants Robert Clark "Sonny" Wood II and Access Medical, LLC (Wood and Access Medical or respondents) on causes of action that included fraud, conversion of property and treble damages under Penal Code¹ section 496. The present appeal focuses on the section 496 causes of action. Although section 496 defines a criminal offense, it also provides an enhanced civil remedy in the event there has been a violation of the statute—that is, where a person has knowingly received, withheld or sold property that has been stolen or that has been obtained in any manner constituting theft. ( § 496, subd. (a) ( § 496(a) ).) The enhanced civil remedy authorized by the statute is that any party injured by the violation of section 496 may file an action for "three times the amount of actual damages " sustained, and for costs of suit and reasonable attorney fees. ( § 496, subd. (c) ( § 496(c) ), italics added.) Here, even though the jury returned a special verdict that found Wood and Access Medical violated section 496(a), the trial court declined to award treble damages to Switzer under the statute. The trial court reasoned that, despite the literal wording of section 496(c), the Legislature could not have intended to apply the treble damage remedy to wrongful conduct committed in the context of a joint venture or preexisting business relationship where ordinary fraud and breach of contract remedies would be available. In subsequent posttrial orders, the trial court also denied two motions filed by Switzer: (i) a motion for attorney fees premised on section 496(c) relating to Switzer’s cross-complaint, and (ii) a motion to amend the judgment to add a successor entity as a new judgment debtor.

Switzer appeals from the judgment, as a partial appeal only, arguing that the trial court erred in failing to award treble damages as required under the clear terms of section 496(c). Switzer further argues the trial court or jury erred in calculating the amount of prejudgment interest, which he asserts should be corrected at this time. Finally, Switzer claims the trial court erred in denying the portion of his motion for attorney fees premised on section 496(c), and additionally erred in denying his motion to modify the judgment to add an alleged successor entity as an additional judgment debtor.

In the published portion of this opinion, we conclude that Switzer is entitled to treble damages under section 496(c). That statute is clear and unambiguous, and its remedial provisions should be applied where, as here, a clear violation of section 496(a) has been found. Accordingly, the judgment is reversed, in part, and the matter is remanded to the trial court to enter a modified judgment that includes treble damages on the section 496 causes of action. Furthermore, in the unpublished portion of this opinion, we reverse the trial court’s denial of Switzer’s motion for attorney fees premised on section 496(c), and the matter is remanded to the trial court for further proceedings to determine the appropriate amount of attorney fees to be awarded pursuant to section 496(c), after which a new order shall be entered awarding the amount of section 496(c) attorney fees so determined. In all other respects, the judgment and orders of the trial court are affirmed.

FACTS AND PROCEDURAL HISTORY

The Pleadings

For purposes of the present appeal, the relevant pleading is Switzer’s cross-complaint, which was filed on June 3, 2013. In that cross-complaint, Switzer alleged direct claims against Wood and Access Medical for, among other things, breach of contract, fraud, breach of fiduciary duty/constructive fraud, conversion, negligence, and for the civil remedies provided by section 496(c). In addition to the direct claims described above, Switzer’s cross-complaint also alleged several derivative claims on behalf of the two-member limited liability company, Flournoy Management, LLC (Flournoy), of which Switzer was the non-managing member and Wood was the managing member. Switzer’s derivative claims on behalf of Flournoy included causes of action against Wood and Access Medical for breach of manager’s duty, fraud, conversion, negligence, and for the civil remedies provided by section 496(c).

Although the allegations in Switzer’s cross-complaint are multifaceted and complex, it appears that the crux of Switzer’s claims arose out of a joint venture or business relationship he entered into with Wood in 2011 that lasted only a short time. Apparently, both Switzer and Wood, individually or through shell companies, had been in the business of selling medical devices, including spinal implants. In May of 2011, they agreed to go into business together. A limited liability company (i.e., Flournoy) was formed and a partnership or joint venture arrangement was agreed to. Under the joint venture arrangement, income from their business enterprises would flow to Flournoy, then after certain reimbursements and expenses were paid, profits would be distributed in equal shares to Wood and Switzer. According to the allegations of the cross-complaint, not long after this business venture got started, Wood deceitfully took possession of, converted, and withheld for himself large sums of money or income belonging to Switzer and/or to Flournoy, and Wood also converted valuable property items belonging to Switzer (i.e., spinal implant inventory) and, upon selling said property items, kept the profits for himself.

In both his direct and derivative claims under section 496, Switzer’s cross-complaint asserted, based on relevant foundational allegations referred to in the pleading, that "[t]he acts of Mr. Wood constitute a violation of Penal Code § 496(a), thus entitling Mr. Switzer to recover from Mr. Wood treble the amount of actual damages sustained by Mr. Switzer, along with Mr. Switzer’s costs of suit and reasonable attorney’s fees ...."

The Trial and Verdict

The case was tried before a jury for a period of 21 days, beginning on August 22, 2017. The jury began its deliberations on October 3, 2017, and finally returned a special verdict on October 11, 2017. In the jury’s special verdict, it found in favor of Switzer and against Wood and Access Medical on Switzer’s direct claims in his cross-complaint for breach of contract, intentional misrepresentation, concealment, breach of fiduciary duty, conversion, negligence, and the civil claim for violation of Penal Code section 496. A second part of the special verdict form addressed Switzer’s derivative claims on behalf of Flournoy. There, the jury found in favor of Switzer and against Wood and Access Medical on Switzer’s derivative claims in the cross-complaint for concealment, breach of manager’s duty, negligence, and the civil claim for violation of Penal Code section 496. The jury also specifically found that Wood and Access Medical had acted with malice, fraud or oppression.

Where called upon to do so on the special verdict form, the jury made specific findings on the amount of actual damages sustained by Switzer on his causes of action. For example, on Switzer’s conversion cause of action, the jury found that the value of the spinal implants converted by Wood and Access Medical was $513,083, and that Switzer’s damages for lost profits due to the conversion was also $513,083. Other damages found to have been sustained by Switzer included $293,904.67 in unreimbursed expenses, and $318,666 in lost partnership profits for sales made in 2011. As to Switzer’s direct section 496 claim, the actual damages sustained by Switzer due to Wood’s and Access Medical’s violation of section 496 were found to be the sum of $1,289,165. As to Switzer’s derivative claim on behalf of Flournoy for Wood’s and Access Medical’s violation of section 496, the actual damages were found to be $401,232.

The jury also inserted, where requested to do so on the special verdict form, amounts of prejudgment interest. In particular, the jury awarded prejudgment interest of $64,732 on Switzer’s conversion causes of action, and $77,283 on Switzer’s non-conversion claims. As to Switzer’s derivative causes of action on behalf of Flournoy, the jury awarded prejudgment interest of $50,620.

The jury’s special findings of fact concerning the section 496 causes of action were clear, definite and complete, answering in the affirmative each of the following specific questions covering the elements of a section 496(a) violation: "1. Did Mr. Wood obtain by theft property belonging to Mr. Switzer or conceal or withhold or aid in concealing or withholding such property from Mr. Switzer? [¶] ... [¶] 2. Did Mr. Wood know the property was obtained by theft at the time he received, withheld, concealed, aided in concealing or withholding the property from Mr. Switzer? [¶] ... [¶] 3. Did Mr. Wood’s violation of Penal Code section 496, subdivision (a), cause Mr. Switzer to suffer injury, damage, loss or harm?" The fourth question to the jury concerning this claim was "[w]hat is the amount of Mr. Switzer’s actual damages caused by Mr. Wood’s violation of Penal Code section 496, subdivision (a) ?" to which the jury responded by inserting the following amount: "$1,289,165.00." We note the jury made identical findings of fact on Switzer’s derivative claim under section 496 on behalf of Flournoy, with the only difference being that the amount of actual damages was $401,232. On both the direct and derivative claims under ...