In Siry Investment, L.P. v. Farkhondehpour, opinion issued on July 21, 2022, the California Supreme Court held that California Penal Code section 496 can apply to a business dispute.
Penal Code section 496(a) provides for criminal punishment for knowingly receiving stolen property. It states: “Every person who … receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained,” is subject to incarceration.
Penal Code section 496(c) provides civil remedies for anyone injured by a violation of section 496(a), including bringing “an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney’s fees.”
The availability of “treble damages” and attorney fees can be significant in business cases where the partnership agreement or LLC operating agreement does not contain a “prevailing party” attorney fee clause.
In Siry the Supreme Court held that Penal Code section 496(c) can apply to a business dispute featuring misappropriation. The Court concluded the law was unambiguous – a plaintiff “may recover treble damages and attorney’s fees under section 496(c) when property has been obtained in any manner constituting theft. … The unambiguous relevant language covers fraudulent diversion of partnership funds.”
The Court cautioned, that “not all commercial or consumer disputes alleging that a defendant obtained money or property through fraud, misrepresentation, or breach of a contractual promise will amount to a theft. To prove theft, a plaintiff must establish criminal intent on the part of the defendant beyond mere proof of nonperformance or actual falsity. … This requirement prevents ordinary commercial defaults from being transformed into a theft.”
Consequently, “innocent” or “inadvertent” misrepresentations or unfulfilled promises would not qualify as theft under Section 496. In Sirv the Court noted, that the evidence showed “defendants acted not innocently or inadvertently, but with careful planning and deliberation reflecting the requisite criminal intent.”
Under the California Supreme Court’s holding in the Siry Investment opinion, the substantial remedies for theft set forth in Penal Code section 496(c) can apply to business disputes. Thus, if you believe a party to a transaction planned to steal from you and did so, you now have authority to recover attorneys’ fees, costs, and treble damages. However, by invoking Section 496 in your dispute, contact your attorney as claims of criminal conduct, if unproven, may subject you to liability for defamation.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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