Judge: Mark H. Epstein, Case: 23SMCV05157, Date: 2024-12-12 Tentative Ruling
Case Number: 23SMCV05157 Hearing Date: December 12, 2024 Dept: I
This is a default prove up.
Essentially, the argument is that plaintiff entered into an agreement
with the defendant on October 15, 2020.
Defendant agreed to supply workers for plaintiff’s warehouse. Plaintiff was to supervise those employees
and pay defendant for the wages and other benefits, which plaintiff did. However, the actual paychecks came from
defendant to the employees. Because of
that arrangement, defendant was actually responsible for paying taxes and the
like and also obligated to report properly to the taxing authorities. In June 2022, plaintiff’s accountant stated
that plaintiff was the common law employer, and thus plaintiff, not defendant,
ought to obtain the benefit for any employment tax credits. Plaintiff called defendant about that and
defendant agreed, promising to provide plaintiff the appropriate forms. Defendant agreed to file the proper IRS form for
the first quarter of 2021 and would provide the data for the second two
quarters. Those documents would then be
filed. While defendant would actually
filed the documents, defendant agreed to remit the money received to
plaintiff. Eventually, plaintiff’s
accountant determined that credits of about $786,000 were due for the first
three quarters of 2021. But above that,
defendant had not filed many forms properly so there was $134,309.39 in tax
penalties and interest due and owing by defendant to the IRS relating to
plaintiff’s common law employees. The
IRS processed some of the forms and defendant obtained a partial refund for the
second quarter of 2021. The amount was
$114,742.15, which was the amount of the refund less the IRS interest and
penalties defendant owed. Defendant
allegedly agreed to turn over the money it received to plaintiff, but allegedly
it never did.
Plaintiff brought suit.
Defendant defaulted and plaintiff now seeks to prove up its
damages. Plaintiff contends that it is
entitled to the damages claimed, but also to have those damages trebled under
Penal Code section 496 because defendant’s actions constitute the receipt of
stolen property. Finally, plaintiff
seeks punitive damages.
The court agrees that the $114,742.15 refund is potentially
subject to Penal Code section 496. That
is a Penal Code statute that requires that the amount of the stolen property be
trebled as a penalty to the victim upon a successful civil suit. The tenth cause of action specifically
alleges a violation of the statute.
Although the complaint actually alleges that defendant received more from
the IRS (it alleges receipt of $249,051.54 in paragraph 18), the prove-up
papers for the smaller amount are more appropriate. The court believes that in accepting the
money (net) that the IRS gave to defendant and keeping it for its own purposes
even though it had agreed that the money truly belonged to plaintiff and that
it would be given over to plaintiff, defendant violated section 496, and treble
damages are appropriate. That means that
the section 496 portion of the judgment is $344,226.45. In addition, plaintiff has demonstrated
damages of $284,806.64 relating to the first quarter of 2021. For that quarter, the IRS did not process a
refund because the window to seek it had closed. However, the failure to seek that money was
due to defendant’s negligent act, and thus defendant is liable. Further, defendant is liable for the
$252,151.34 relating to the third quarter of 2021, which may or may not already
be in defendant’s possession but something to which plaintiff is entitled. The court agrees that prejudgment interest is
appropriate for the amount of the award other than the trebling penalty.
The court does not treble the damages for any part of the
money the IRS has not yet remitted to defendant. Because defendant does not have the benefit
of that money, defendant has not received stolen property subject to section
496 as to that property. But to make
sure that the property goes directly to plaintiff, the court will issue an
appropriate order or statement if that would help the IRS send the money
directly to plaintiff rather than to the defense. Of course, any money received from the IRS
directly will act as a dollar for dollar credit against the judgment.
Plaintiff is also entitled to attorneys’ fees and
costs. That amount is $75,088.84,
according to the Markus Declaration.
Fees are recoverable pursuant to section 496. The court does not believe that, in the
default judgment context, it is feasible to try and disambiguate the fees
related to the second quarter of 2021 from the fees related to other aspects of
the case.
Plaintiff also seeks an accounting. However, the court is not sure what purpose
the accounting would serve. Plaintiff
has demonstrated the amount of the recovery to which he is entitled, and he is
entitled to get it from defendant whether or not defendant obtained it from the
IRS. The court therefore does not
believe an accounting will serve any purpose other than prolonging this
litigation. Also, the court sees no
purpose in the declaration, other than to the extent it might help the IRS send
money directly to plaintiff, and the court has already said it would sign an
appropriate order to that effect. No
further declaration is required nor would it be helpful. If it turns out that the IRS needs additional
information to process the 2021 papers, plaintiff may seek a further order from
the court.
Plaintiff’s proposed judgment seeks a total award of
$873,437.56 plus interest of $215.34 per day from August 26, 2024, through the
date judgment is entered, and, presumably, post judgment interest
thereafter. The court will ask plaintiff
to perform the calculation of interest through entry of judgment (right now),
but making sure not to include prejudgment interest on the statutory
penalty. The court will insert that
number and sign the judgment. If the
further order is needed to aid the IRS in sending money directly to plaintiff
rather than to defendant, plaintiff will request it in due course.