The California Supreme Court ruled last week Siri Investment vs. Saeed Farkhondehpour It can significantly expand the remedies available to partners or others in commercial disputes who are victims of financial theft related to company assets and funds. Section 496(a) criminalizes receiving stolen property and provides for treble damages and attorney’s fees for the offending party. In a landmark opinion, the Supreme Court has ruled that Section 496 of the Penal Code can be applied when there is a transfer of money or property from a partnership, limited liability company or other business. It has been seen. to the plaintiff by SiriImplementing Section 496 increased the output by millions. of Siri A decision will likely provide plaintiffs in some commercial disputes with remedies for treble damages and attorney’s fees that would not normally be available for similar claims in other situations.
Partners diverted partnership funds for their own benefit.
Parties in Siri He formed a partnership to renovate and lease space in a mixed-use building. As with most partnership or limited liability agreements, the parties agree on distributions of the partnership’s funds along with a certain percentage to be distributed to the partners.
But the defendant partners formed a separate entity and demanded that the tenants of the building pay rent instead of the partnership. Thus, the defendants improperly siphoned rental income from the partnership. The defendants began charging personal and other non-partnership expenses to the partnership. The net effect of these actions was to cause the partnership to underpay the plaintiff. The two defendants asserted that the plaintiff was unaware of the underpayment by misrepresenting the building’s rental income and partnership expenses, lying about what the distributions should have been.
The plaintiff sued the defendants for underpaying the plaintiff and misdirecting the partnership’s rental income to their own coffers.
The Supreme Court applied Section 496 of the Penal Code to partnership litigation.
Examining section 496 and the statute’s legislative history, the Supreme Court concluded that a plaintiff in a commercial dispute may recover treble damages and attorney’s fees upon discovery of partnership funds or distributable property transferred under section 496(c). A way to create theft. The court ruled that the definition of theft in Penal Code 484, which states that knowingly and willfully receiving another’s money by false representation or falsehood, applies to civil action under Section 496(c). Section 496(c) has confirmed the applicability of conduct in Siri Because the unequivocal provision of the law covers the fraud of mutual funds. In doing so, the Court rejected the view set out in Article 496.
The court stated that all commercial or consumer claims that the defendant obtained money or property through fraud, misrepresentation or breach of contract are not theft within the meaning of the statute. Rather, to prove theft under section 496, a plaintiff must prove criminal intent against the defendant beyond “proof of unenforceability or actual forgery.” This requirement prevents “ordinary business default” from turning into theft. If misrepresentations or unfulfilled promises “are made innocently or negligently, an action for obtaining property by false pretense cannot be made any more than an innocent breach of contract can.” in SiriThe court stated that the defendants did not act innocently or recklessly, but with careful planning and deliberation, reflecting the necessary criminal intent.
Implications for future litigants
Prospective litigants should consider the applicability of Penal Code Section 496 to disputes between partners of LLC members.
Siri It is now clear that Section 496 of the Penal Code provides for the transfer of funds or property from a partnership, LLC or other business as long as the necessary intent to withhold other funds is shown. For future disputes between business partners, the parties should be aware of the potential for treble damages and attorney fees if they can show the necessary wrongful intent to steal or divert or misappropriate LLC funds from partners or LLC members.
