Judge: Mark C. Kim, Case: 20LBCV00270, Date: 2022-12-15 Tentative Ruling
Case Number: 20LBCV00270 Hearing Date: December 15, 2022 Dept: S27
1. Allegations
of the Complaint
Plaintiff, Bond Nichols filed this
action against Defendants, DDSW, LLC, David Sazegar, and Neal Thompson for
breach of contract, breach of contract, and breach of fiduciary duty. The crux of the complaint is that Plaintiff
loaned money to Defendants in connection with two separate real property
development projects, pursuant to which Plaintiff was to be paid back and also
paid a percentage of the sale proceeds once the projects were complete. Plaintiff alleges Defendants completed and
sold the projects, but made no payments to Plaintiff.
Plaintiff alleges both contracts entered
into were partnership agreements.
Plaintiff alleges, at ¶46 of his complaint, that “Nichols and Thompson”
were the alter egos of DDSW; it appears Plaintiff meant to plead that Sazegar
and Thompson were the alter egos of DDSW.
2. Motion
for Leave to Amend
a. Relief
Sought
Plaintiff seeks leave to file an
amended complaint against Defendants including a cause of action for violation of
Penal Code §496. Plaintiff contends a
recent CA Supreme Court decision makes clear the cause of action can be pled
under the circumstances.
b. Standard
on Leave to Amend
The court may, in furtherance of
justice, and on such terms as may be proper, allow a party to amend any pleading. (CCP §§473 and 576.) Judicial policy favors resolution of all
disputed matters between the parties and, therefore, leave to amend is generally
liberally granted. Ordinarily, the court
will not consider the validity of the proposed amended pleading in ruling on a
motion for leave since grounds for a demurrer or motion to strike are premature. However, the court does have discretion to
deny leave to amend where a proposed amendment fails to state a valid cause of
action as a matter of law and the defect cannot be cured by further
amendment. (California Casualty General
Ins. Co. v. Superior Court (1985) 173 Cal.App.3d 274, 281.)
The application for leave to amend
should be made as soon as the need to amend is discovered. The closer the trial date, the stronger the
showing required for leave to amend. If
the party seeking the amendment has been dilatory, and the delay has prejudiced
the opposing party, the Court has the discretion to deny leave to amend. (Hirsa v. Superior Court (1981) 118 Cal.App.3d
486, 490.) Prejudice exists where the
amendment would require delaying the trial, resulting in loss of critical
evidence, or added costs of preparation such as an increased burden of
discovery. (Magpali v. Farmers Group,
Inc. (1996) 48 Cal.App.4th 471, 486-488.)
c. Analysis
Defendants’ sole argument in
opposition to the motion is that the proposed amended complaint fails to state
a cause of action for violation of Penal Code §496. As noted above, the issue on a motion for
leave to amend is not just whether the proposed amended complaint states a
cause of action, but whether it either states a cause of action OR could be
further amended to do so. The Court will
consider the issue with the correct standard in mind.
The parties disagree concerning the
impact of the recent case of Siry Investment, LP v. Farkhondehpour (2022) 13
Cal.5th 333. In Siry, a
limited partner brought an action against the partnership’s general partner, as
well as others, for breach of the parties’ partnership agreement. The crux of the allegation against the relevant
defendants was that they were diverting rental income away from the limited
partnership and into the general partner, and that they charged personal and
other nonpartnership expenses to the partnership, which resulted in underpayment
to the plaintiff of cash distributions due.
The defendants’ answer was ultimately stricken, and the plaintiff
limited partner obtained a default judgment against the defendants. The defendants appealed, and one of the
issues on appeal was whether the plaintiff was entitled to heightened damages
under §496.
The Supreme Court detailed the history
of Penal Code §496 and the cases interpreting it at length. The crux of the holding is as follows (citations
omitted):
Viewing the issue independently as
a matter of law, we endorse the analysis of Bell and Switzer — even though, at
the same time, we acknowledge that some of the policy considerations
highlighted in those cases, and elaborated upon by the appellate court below,
give pause. Fundamentally, we agree with the conclusions of Bell and Switzer
that section 496(c) is unambiguous, and that read together with sections 496(a)
and 484, and in conformity with our standard approach to interpretation (citation),
section 496(c) must be understood as yielding the understanding attributed to
it in those decisions: A plaintiff may recover treble damages and attorney's
fees under section 496(c) when property has been obtained in any manner
constituting theft.
We also find that section 496(c)
applies concerning the conduct at issue in the present case. The unambiguous
relevant language covers fraudulent diversion of partnership funds. Defendants’
conduct falls within the ambit of section 496(a): They “receive[d]” “property”
(the diverted partnership funds) belonging to plaintiff, having “obtained” the
diverted funds “in [a] manner constituting theft.” (Ibid.) Defendants also
conceal[ed]” or “withh[e]ld[ ]” those funds (and/or aided in concealing or
withholding them) from plaintiff. (Ibid.) They did all of this “knowing” the
diverted funds were “so ... obtained.” (Ibid.)
We pause to elaborate on these
points, and, specifically, criminal intent under the statute. Because this
litigation comes to us upon default judgment, defendants are deemed to have
admitted all material allegations, including the allegation that defendants
committed theft. Although we are not asked here to determine whether plaintiff
would have been able to prove theft, we observe 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.” (citation)
This requirement prevents “ ‘[o]rdinary commercial defaults’ ” from being
transformed into a theft. (citation.) If misrepresentations or unfulfilled
promises “are made innocently or inadvertently, they can no more form the basis
for a prosecution for obtaining property by false pretenses than can an innocent
breach of contract.” (citation.) In this case, the record appears consistent
with a conclusion that defendants acted not innocently or inadvertently, but
with careful planning and deliberation reflecting the requisite criminal
intent.
Defendants’ violation of section
496(a) caused plaintiff to suffer actual damage, loss, or harm. (citation.) In
these circumstances, plaintiff qualifies under section 496(c) as “[a]ny person
who has been injured by a violation of subdivision (a)” — and hence is entitled
to “bring an action for three times the amount of actual damages, if any ...
and reasonable attorney's fees.” Finally, as the court in Switzer also
observed, this construction and application of the statute cannot be avoided
under the so-called “absurdity exception.” (citation.)
Defendants herein focus on the
portion of Siry that discusses criminal intent.
They contend there are no allegations in the proposed amended complaint
that show criminal intent. The Court
finds Defendants have not demonstrated leave to amend would be improper for
three reasons. First, to the extent
there is any such defect, Defendants have not shown it could not be cured by
way of further amendment, which is the proper standard. Second, while not expressly deciding the
issue (which the parties would need to brief if Defendants were to challenge the
amended complaint), it appears intent could be inferred from the complete and
total nonpayment on the part of Defendants.
Third, issues of intent are necessarily largely evidentiary in nature,
and for the trier of fact, after presentation of all relevant evidence, to
decide.
Defendants also argue briefly they
did not steal the monies that form the basis of the proposed amended complaint
because the capital contributions were given freely and they received the
profits from the sales properly and through escrow. The defendants in Siry also received the
monies properly; it was their failure to account for and pay the monies to the
plaintiff, as required under the parties’ agreement, that formed the basis of
that action. Likewise, in this case, it
is Defendants’ decision to retain monies they were obligated to pay to
Plaintiff that form the basis of the proposed amended complaint in this
case.
Plaintiff
is ordered to give notice.
Parties who intend to submit
on this tentative must send an email to the court at gdcdepts27@lacourt.org indicating intention to submit on the tentative as
directed by the instructions provided on the court website at www.lacourt.org. If the department
does not receive an email indicating the parties are submitting on the
tentative and there are no appearances at the hearing, the motion may be placed
off calendar. If a party submits on
the tentative, the party’s email must include the case number and must identify
the party submitting on the tentative. If any party does not submit on the tentative,
the party should make arrangements to appear remotely at the hearing on this matter.