Siry Inv., L.P. v. Farkhondehpour

SIRY INVESTMENT, L.P., Plaintiff and Appellant, v. SAEED FARKHONDEHPOUR et al., Defendants and Appellants.

B277750

C/w B279009

C/w B285904

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO

March 3, 2020

CERTIFIED FOR PUBLICATION

ORDER MODIFYING OPINION AND DENYING REHEARINGNO CHANGE IN JUDGMENT

THE COURT:

It is ordered that the opinion filed herein on March 3, 2020, be modified as follows:

1. On page 47, after the penultimate sentence of the last full paragraph (immediately after "1029.8."), insert a footnote with the following text:

For the first time in its petition for rehearing, Siry argues that the trial court's award of attorney fees rests on two other statutes: (1) now-repealed Corporations Code section 15634, and (2) section 2023.030, subdivision (a).

By mentioning former Corporations Code section 15634 only in its response to defendants' argument that the trial court should not have awarded Siry a subset of attorney fees "for litigating the prior [2003] accounting action" and not mentioning section 2023.030, subdivision (a) at all in its merits briefs, Siry has waited until its petition for hearing to assert these statutes as alternative grounds for affirming the attorney fees award. Its arguments have accordingly been waived. (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1092, abrogated on other grounds as stated in Martinez v. Combs (2010) 49 Cal.4th 35.)

Although the trial court's order awarded Siry attorney fees "pursuant to [] section 1029.8, Penal Code section 496 and other fee shifting provisions discussed in Siry's damages brief" (italics added), that order was not grounded on either former Corporations Code section 15634 or section 2023.030.

The fee award was not grounded in former Corporations Code section 15634 because that provision, until its repeal in 2010, gave a trial court the discretion to award attorney fees only in actions brought "under" that section "to inspect . . . partnership . . . records" (former Corp. Code, § 15634, subd. (g); Berti v. Santa Barbara Beach Properties (2006) 145 Cal.App.4th 70, 72), and Siry's operative fifth amended complaint neither sought an orderto inspect records nor cited former Corporations Code section 15634 at all. Siry's untethered allegation that defendants denied it "access to copies of the . . . Partnership's full and accurate financial records" and its expansive statement in its default prove-up package that "all applicable fee-shifting provisions" apply, accompanied by a footnote citing Corporations Code section 15634 illustratively, cannot compensate for Siry's failure to adequately plead a claim "under" this statute.

The fee award was also not grounded in section 2023.030, subdivision (a) because the trial court ordered Siry to "present[]" its "request for attorney fees" "in [its] default package," and as Siry concedes, it did not present section 2023.030 as a basis for fees in its package. Siry's suggestion that its request for all of its attorney fees under Penal Code section 496 and section 1029.8 necessarily encompassed a claim for the un-segregated subset of those fees attributable to the terminating sanctions motion works only if a party's failure to plead a ground for relief means that every possible ground for relief applies. This turns the usual rules of pleading on their head.

2. On page 7, at the end of the carry-over paragraph (after "$12,023.067.10"), insert a footnote with the following text:

Siry contends that the original judgment came to a total of $16,023,067.10 because, as it reads that judgment, the trial court awarded a total of $8 million in punitive damages—half against the Farkhondehpour parties and half against the Neman parties. We question Siry's readingof the original judgment but need not parse it because the relevant judgment on appeal is the amended judgment, which we discuss infra.

There is no change in the judgment.

Appellant's petition for rehearing is denied.

/s/_________

LUI, P.J.,

/s/_________

CHAVEZ, J.,

/s/_________

HOFFSTADT, J.

CERTIFIED FOR PUBLICATION

(Los Angeles County Super. Ct. No. BC372362)

APPEAL from a judgment of the Superior Court of Los Angeles County. Stephanie M. Bowick, Judge; and Edward B. Moreton, Judge. Affirmed as modified.

Wilson, Elser, Moskowitz, Edelman & Dicker, Gregory D. Hagen, and Robert Cooper for Plaintiff and Appellant.

Richard L. Knickerbocker for Defendants and Appellants Saeed Farkhondehpour, individually and as trustee of the 1994 Farkhondehpour Family Trust, and 416 South Wall Street, Inc.

Fisher & Wolfe and David Fisher for Defendant and Appellant Morad Neman, individually and as former trustee ofthe Neman Family Irrevocable Trust and the Yedidia Investments Defined Benefit Plan.

Greines Martin Stein & Richland, Robert A. Olson, and Edward L. Xanders for Defendant and Appellant Morad Neman, individually and as former trustee of the Neman Family Irrevocable Trust and the Yedidia Investments Defined Benefit Plan.

* * * * * *

This is the fourth appeal in this longstanding lawsuit, and challenges a $7 million default judgment entered after the trial court issued terminating sanctions. Among the many issues raised by the parties on appeal, three present significant legal questions: (1) May a trial court issue terminating sanctions when the discovery a party contumaciously refuses to provide encompasses fewer than all the issues in a case; (2) May a party in default file a motion for new trial raising "[e]rror[s] in law," including the inapplicability of certain remedies under the allegations as pled; and (3) 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?

On the first question, we conclude that a trial court is not foreclosed from issuing terminating sanctions just because the underlying discovery encompasses only a subset of the issues in the case. On the second question, we conclude that a party against whom a default has been entered may file a motion for new trial attacking the default judgment as containing "error[s] in law." And on the third question, we conclude that Penal Code section 496, subdivision (c) only authorizes an award of treble damages or attorney fees when the underlying conduct involvestrafficking in stolen goods; in so doing, we respectfully part ways with Switzer v. Wood (2019) 35 Cal.App.5th 116 (Switzer), which holds to the contrary.

After considering all of the parties' arguments in these consolidated cross-appeals, we affirm the entry of terminating sanctions but modify the judgment to eliminate the awards of treble damages and attorney fees.

FACTS AND PROCEDURAL HISTORY

I. Facts¹

In 1998, Moe Siry, Saeed Farkhondehpour (Farkhondehpour), and Morad Neman (Neman) formed a limited partnership to renovate and lease space in a mixed-use building in downtown Los Angeles. The partnership agreement named one general partner (namely, 416 South Wall Street, Inc. (416 South Wall Street), of which Farkhondehpour was president) and four limited partners (namely, Siry Investment, L.P. (Siry), the 1993 Farkhondehpour Family Trust (of which Farkhondehpour was trustee), the Neman Family Irrevocable Trust (of which Neman was trustee), and the Yedidia Investment Defined Benefit Plan Trust (of which Neman was also trustee)). The agreement divvied up the partnership's cash distributions as follows: Siry was to receive 39.60 percent; the Farkhondehpour Family Trust, 29.70 percent; the Neman Family Irrevocable Trust, 19.80 percent; and the Yedidia plan, 9.90 percent. A separate entity—namely, Investment Consultants, LLC (Investment Consultants)—was responsible for acting as property manager, for making the required cash distributions, and for managing the renovations.

In 2003, Farkhondehpour, Neman, and 416 South Wall Street created an entity named DTLA, required the building's tenants to pay their rent to DTLA, and through these means started to "improperly divert rental income away from the . . . [limited] partnership and into DTLA." Farkhondehpour and Neman also began to charge personal and other non-partnership expenses to the partnership. The net effect of these actions was to direct Investment Consultants to underpay Siry its cash distributions. What is more, Farkhondehpour and Neman ensured that Siry remained unaware of the underpayments by misrepresenting to Siry the building's rental income and the partnership's expenses, effectively lying to Siry about what its cash distributions should have been.

II. Procedural Background

A. Siry's lawsuit, first trial and reversal

In June 2007, Siry sued Neman, Farkhondehpour, 416 South Wall Street, and the trusts over which they were trustees (collectively, defendants) for underpaying Siry and improperly diverting the partnership's rental income to their own coffers.²

The matter proceeded to a jury trial in October 2009. At that time, Siry's operative second amended complaint sought (1) dissolution and winding up of the limited partnership, (2) an accounting, (3) damages for breach of the agreement, and (4) damages for breach of fiduciary duty. The jury found for Siry, awarding actual damages of $242,975 and punitive damages of $1.1 million against Farkhondehpour and $2 million against Neman. The trial court denied a subsequent motion for a new trial, but reduced the punitive damages awards to $728,925 against each Farkhondehpour and Neman.

In December 2012, we reversed the jury's verdict. (Siry Inv., L.P. v. Farkhondehpour (Dec. 12, 2012, B223100, B234655) 2012 Cal.App.Unpub.LEXIS 9014 [nonpub opn.].) We did so because the special verdict form submitted to the jury did not require the jury to specify whether Farkhondehpour and Neman were liable to Siry individually or as trustees of the various trusts. This defect rendered the verdict "hopelessly ambiguous" and, because "who is liable [was] key," necessitated a remand for a re-trial. (Id., at *2, *4, *6-*7,

B...