CA Supreme Court Lowers the Bar for Aggrieved Business Partners to Sue for Treble Damages.
On July 21, 2022 the California Supreme Court issued it's long-awaited opinion regaridng the issuance of treble damages with respect to certain business partnership disputes. Prior to this date, if an aggrieved business partner wanted to seek penalties, such as treble damages, from a partner who allegedly stole money from the company the only recourse was pleading fraud, or criminal theft. Each of those pleading requriements is onerous. Now, in Siry Investment, L.P. v. Farkhondehpour, 2022 WL 2840312, the California Supreme Court has made ot clear that Section 496(c) of the Califrnia Penal Code is unambiguous and covers "fraudulent diversion of partnership funds." The end result is that the bar has been signifncatly lowered to plead and prove treble damages in civil lawsuits.
California Penal Code Section 496(a) criminalizes the receipt of stolen property. Before July 21, 2022 if a civil litigant filed a lawsuit against a business partner in civil court under this statute the jurisidctions were split if money was to be considered "stolen property."
Section 496(c) provides that a person injured by a violation of Section 496(a) may "bring an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney’s fees".
Now, in Siry Investment, L.P. v. Farkhondehpour, 2022 WL 2840312, the California Supreme Court has made clear that Section 496(c) is unambiguous and covers "fraudulent diversion of partnership funds". There is a caveat, however. The Court, in its decision, observed that not all commercial or consumer disputes alleging that a defendant obtained money or property through fraud, misrepresentation, or breach of contract will amount to theft. According to the Court, the plaintiff must still establish criminal intent beyond mere proof of nonperformance or actual falsity. Despite this warning, the floodgatesa are now open for civil lawyers to plead violations of California Penal Code Section 496(a) across the entire state. Whether this is good or bad for the civil judicial system remains to be seen. I expect this holding will now force many defendants in commerical disputes to come to the baraining table much quicker.