Bookmark Penal Code section 496 and Bell v. Feibush (D4d3 2013) 212 Cal.App.4th 1041, if you have not already, which together hold that failing to pay back a loan could subject the borrower to penalties for civil theft: treble damages, plus attorney fees. No need to establish the wrongdoing via a criminal conviction first.
This is a powerful remedy. Even the trial judge in Bell begrudged it: “I really don't like it, to be honest with you, but that is what [Penal Code section 496] says.” The Fourth District hedged a bit too, cautioning that the remedy would be limited to situations actually involving receipt of stolen property, such as in false pretenses: when a borrower receives money with no intention to repay it, it is no different from other forms of "stolen property," and thus falls under the statute.
But the Fourth District recognized "the potential consequences" of its interpretation. That is why it suggested that "the Legislature  address those policy concerns."
By six years later in 2019, the Legislature had taken no action. The Fifth District thus followed Bell, and a number of other cases similarly applying section 496, in its 2019 opinion in Switzer v. Wood (D5 Apr. 15, 2019) F077206. Switzer held a business partner liable for civil theft for converting money and property belonging to a medical devices venture.
But this year the Second District parted ways in Siry Inv. v. Farkhondehpour (D2d2 Mar. 3, 2020) 45 Cal.App.5th 1098, where a business partner funneled the partnership's rental income into his personal entity. The shape of the fact pattern was not materially different from Switzer, but Siry held "receiving stolen property" means "trafficking," and not ordinary business torts, reasoning that the approach in Bell and Switzer and other cases would work "a significant change" to the regime of tort remedies.
Siry does not disagree with other cases that the application to civil torts is supported by the statute's very language. But the Second District "conclude[s] that Penal Code section 496's language sweeps more broadly than its intent." While other cases had noted, as did the Fourth District in Bell, that it "is not th[e] court's role" to read language in or out of a statute, the Siry court apparently takes a different view. Siry notes that "our Legislature has not shouted, stated, or even whispered anything about Penal Code section 496 effecting such a 'significant change'...."
But then again, the Legislature has had many years' notice. Inaction is probative, too.
The California Supreme Court has granted review, and in due course will answer the question: “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?”.
[Tags: Civil Theft, Treble Damages ]
Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at firstname.lastname@example.org or (714) 641-1232.