New CA Partnership Case

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Partnerships

Last month, the California Supreme Court decided whether a plaintiff alleging fraudulent diversion of partnership profits can obtain treble damages and attorney fees under Penal Code section 496(c). A video discussing the case is above and my summary of the case is below.

New Partnership Decision  

Siry Investment, L.P. v. Farkhondehpour (2022) __ Cal.5th __ , 2022 WL 2840312: The California Supreme Court affirmed in part, and reversed in part, the Court of Appeal's decision in plaintiff's[1] action alleging fraudulent diversion of partnership profits. After a prior appeal, the case was remanded to the trial court. Defendants failed to respond to discovery responses, ever after being ordered to do so. The trial court issued an order granting terminating sanctions striking defendants' answers and entering their default. The trial court later issued a default judgment against defendants in the total sum of $12,023,067.10 (compensatory damages, with interest, of $956,487; treble damages of $2,869,461 pursuant to Penal Code section 496(c); punitive damages of $4 million (plus $1 against only against defendant 416 South Wall Street); attorney fees totaling $4,010,008.97; and costs of $187,109.13). The California Supreme Court, addressing conflicts in the Courts of Appeal, ruled that (1) a party in default has standing to file a motion for a "new trial" asserting legal error relating to calculation of damages and (2) a trial court may award treble damages and attorney fees under Penal Code section 496, subdivision (c) in a case involving, not trafficking of stolen goods, but instead, fraudulent diversion of a partnership's cash distributions. The Court of Appeal, applying Code of Civil Procedure section 657(7), properly determined that defendants' challenges to the damages awarded in the original and amended default judgment raised, and constituted, errors in law that were properly brought to the court's attention via defendants' motion to vacate the trial court's decision and to grant a new trial / judgment hearing. Treble damages and attorney fees are available under Penal Code section 496(c) when property has been obtained in any manner constituting theft, and the Supreme Court concluded that the statute's unambiguous words apply to fraudulent diversion of partnership case distributions. (July 21, 2022.)

[1] Plaintiff was a limited partner.

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Monty A. McIntyre, Esq.
California Case Summaries™
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